Wiggins v. Freeman — 174 A.D. 304

Majority

p. 304

William A. Wiggins, Appellant, v. William H. Freeman, as Assignee for the Benefit of Creditors of J. A. Jones Wagon and Carriage Company and Others, Defendants, Impleaded with William H. Freeman, as Receiver, etc., Respondent.

Second Department,

July 28, 1916.

Headnote

Receivers — mortgage foreclosure — unauthorized payment of rents by receiver under prior assignment thereof.

Where an assignee for the benefit of the creditors of an insolvent corporation assigned rents to become due in the future as security for borrowed money and was afterwards appointed receiver of rents in a suit to foreclose a mortgage on the real estate of the corporation, it was his duty to collect the rents for the benefit of the foreclosure action. Where he continued to pay the rents to his assignees, he did so at his peril, and should be personally charged therewith on the settlement of his accounts as receiver.

Appeal by the plaintiff, William A. Wiggins, from an order of the Supreme Court, made at the Westchester Special Term and entered in the office of the clerk of the county of Westchester on the 5th day of May, 1916.

p. 305

William W. Scrugham, for the appellant.

William H. Freeman, for the respondent.

This is an appeal from an order of the Special Term in Westchester county settling the accounts of a receiver of rents in a foreclosure action. Freeman, the respondent, was an assignee of an insolvent corporation, the owner of the equity of redemption. As such assignee he borrowed some small sums of money and gave as security assignments of the rents thereafter to fall due. Then, when this action was brought to foreclose a mortgage on the premises, he was appointed personally as receiver of the rents and profits for the benefit of the action. He thereafter collected the rents and paid over to the assignees from him as assignee of the corporation the amounts he had borrowed and accounted for the balance remaining. The plaintiff objected to the account of the receiver, but the court at Special Term allowed the account so far as this transaction is concerned. The plaintiff appeals.

The court was in error. The assignment of future rents did not take precedence of the receiver’s right and duty to collect them for the benefit of the foreclosure action. The assignees of the future rents stood in no better position than the owner of the equity of redemption. As against him, the receiver had a prior right. (Home Life Ins. Co. v. O’Sullivan, 151 App. Div. 535 ; Fletcher v. McKeon, 71 id. 278.) The receiver, having collected the rents, should have held them for the credit of this action. He paid them over to the assignees at his own peril and should be charged accordingly on the settlement of his accounts as receiver. The respondent, the receiver, relies upon Harris v. Taylor ( 35 App. Div. 462 ) to the contrary; but there the assignment by the mortgagor of rents thereafter to fall due was made to the holder of a prior mortgage upon the same premises and was made expressly asa “ further security ” for the payment of the sum due or to become due on that mortgage. Hence, that authority has no application to the present situation. Nor has the case of Thomson v. Erskine ( 36 Misc. Rep. 202 ), for there the assignment of future rents was made

p. 306

by the mortgagor to the mortgagees and the question of the rights and duties of a receiver in a foreclosure action did not arise, for the mortgage was not foreclosed and the action was between mortgagees, as assignees of future rents, and the tenants of the premises, who owed the rents.

The order appealed from should be modified by surcharging the receiver with the amounts of rents collected by him as receiver, which have been paid over by him to the assignees of the future rents, and as so modified affirmed, without costs. As the receiver acted mistakenly hut in good faith, he should be allowed his commissions and reasonable expenses.

Jenks, P. J., Thomas, Eich and Putnam, JJ., concurred.

Order modified in accordance with opinion, and as so modified affirmed, without costs. Order to be settled before Mr. Justice Carr.

Cases cited

Thomson v. Erskine 36 Misc. Rep. 202 N.Y. App. Term p. 305